A trustee is a representative assessee under sections 160 and 161, taxed in the same manner and to the same extent as the beneficiary would have been, so a determinate trust is taxed at each beneficiary's own rate. Where the beneficiaries' individual shares are indeterminate or unknown, section 164 charges the whole income at the maximum marginal rate, and section 161(1A) does the same wherever the trust income includes business profits.
Section 160 lists who is a representative assessee — a trustee of a trust declared by a duly executed instrument, an agent of a non-resident, a guardian of a minor, and others. The representative is not taxed on his own account. He is taxed as a stand-in.
Section 161(1) sets the measure. The representative assessee is subject to tax in respect of the income he represents in like manner and to the same extent as it would be leviable on the person represented. In a determinate or specific trust — where each beneficiary's share is known — that means separate computations, one per beneficiary, in the beneficiary's own status and at the beneficiary's own rate, with the beneficiary's own exemption limit and deductions. The Supreme Court's approach in the Nizam's Family Trust case is the source of that framework, and the Madras High Court in the A.K.A.S. Trust line held that a single assessment clubbing defined shares is invalid.
Section 161(1A) overrides all of that where the trust income includes profits and gains of business. Then tax is charged on the whole of the trust income at the maximum marginal rate, with a narrow exception for a testamentary trust declared by will exclusively for the benefit of a dependent relative where it is the only trust so declared. Commentary reports that on one High Court view (T.A.V. Trust) only the business component takes the maximum marginal rate, so the point is not uniformly applied.
Section 164 deals with the discretionary trust — where the individual shares of the persons on whose behalf the income is receivable are indeterminate or unknown. Tax is charged on the relevant income at the maximum marginal rate, with no basic exemption. The section carries provisos that let some trusts be taxed instead at the rate applicable to an association of persons: broadly, where no beneficiary has other income above the exemption limit and is not a beneficiary under any other trust; a testamentary trust that is the only one so declared; a pre-1970 trust created for the settlor's dependent relatives; and certain employee benefit funds. Business income inside those exceptions still goes to the maximum marginal rate.
"Maximum marginal rate" is defined in section 2(29C) as the rate of income tax, including surcharge on income tax if any, applicable in relation to the highest slab of income in the case of an individual, association of persons or body of individuals under the relevant Finance Act. A Special Bench of the Mumbai Tribunal in Araadhya Jain Trust, decided on 9 April 2025, read that as importing the Finance Act's machinery rather than authorising the highest surcharge automatically: the basic rate is the top slab rate, but surcharge follows the slab-wise thresholds, so a trust whose income is below the surcharge threshold pays no surcharge.
Section 162 gives the representative assessee the right to retain out of the money in his hands, or to recover from the beneficiary, the tax he has paid. Section 163 defines who may be treated as an agent of a non-resident. And section 166 preserves the department's option to assess the beneficiary directly instead — but the same income cannot be collected twice; the department picks one route.
The maximum marginal rate applies with no exemption limit and no slab benefit, so a badly drafted trust deed can convert income that would have been taxed at ordinary rates in the beneficiaries' hands into a flat top-rate charge. Whether shares are determinate is decided from the deed, which means the drafting done years ago decides the rate today.
A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it?
A discretionary trust distributed income to me during the year and the trustees have already been assessed on it. Can the Assessing Officer also assess me?
I canvass orders in India for foreign suppliers and pass them on for acceptance abroad. Does that give the foreign supplier a business connection here, so that I can be taxed as its agent?
I credited commission in my books to a foreign selling agent who works entirely outside India, and remitted it later. Is that commission taxable in India in his hands?
The department says our family trust is really a specific trust because the settlor used to show its income in his own return. The trustees have retained the income. Can it be taxed in the beneficiary's hands?
My father's foreign trust can only be unwound if the settlor and the trustee act together. Does that still make it a revocable transfer taxable in his hands?
A court receiver is running the dissolved firm's business and paying each of us a monthly sum. The department wants to tax the profits as an AOP. Can it, when we are fighting each other?
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